Section 10AA deduction applies at the gross total income computation stage, not after Chapter VI adjustments.

Section 10AA deduction is to be computed at the stage of determining the gross total income of the eligible undertaking under Chapter IV, not only after applying Chapter VI. The Karnataka HC followed earlier binding precedent and held that the deduction mechanism operates at the Chapter IV computation stage. On that basis, the substantial question of law was answered against the Revenue and in favour of the assessee.

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Issues: Whether the deduction under Section 10AA of the Income-tax Act, 1961 is to be computed at the stage of computing gross total income under Chapter IV, or only after applying the provisions of Chapter VI.

Analysis: The issue was held to be covered by earlier binding precedent, following which the stage for granting deduction under Section 10AA is at the level of computation of the gross total income of the eligible undertaking under Chapter IV and not at the stage of computation of total income under Chapter VI. On that basis, the substantial question of law was answered against the Revenue.

Conclusion: The answer was in favour of the assessee and against the Revenue.

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